International Connex Holdings Pte Ltd v. Wealth Resources Enterprises Ltd

HCMP 980/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 980 OF 2006

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BETWEEN

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Before: Mr Recorder Kwok, SC in Chambers

Date of Hearing: 23 June 2006

Date of Judgment: 23 June 2006

Date of Reasons for Decision: 29 June 2006

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REASONS  FOR  DECISION

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Applications and orders made

1.By summons dated 19 May 2006, the plaintiff for an interlocutory injunction against the defendant.

2.By summons dated 25 May 2006, the defendant applied for security for costs.

3.At the hearing on 23 June 2006, the plaintiff applied for leave to amend the Originating Summons.  The defendant had no objection and I granted the application.

4.At the conclusion of Mr Damien Laracy’s submission, I dismissed the plaintiff’s application without calling on Ms Elsie K.S. Yiu.

5.After hearing both parties, I granted the defendant’s application.

6.I made the following orders and told the parties that reasons for my decision would be handed down in writing:

(1) Leave to amend Originating Summons as per draft, costs of and occasioned by amendment be taxed and paid by the plaintiff to the defendant.

(2) Plaintiff’s summons dated 19 May 2006 is dismissed with costs, including costs reserved, to be taxed and paid by the plaintiff to the defendant.

(3) The plaintiff do provide security for the defendant’s costs of this action up to to-day in the sum of HK$190,000.00 by making payment of such sum into Court by 14 July 2006.

(4) All proceedings in this action shall be stayed pending payment of security for costs.

(5) This action be dismissed with costs if security is not given within the time so ordered.

(6) There be liberty to apply for further security.

(7)     Costs of this application be to the defendant.

7.My reasons follow.

The background

8.The plaintiff is a private company incorporated in Singapore.  One Mr Tan and one Mr Chan were directors of the plaintiff.  There is no allegation that the plaintiff had any presence or asset in Hong Kong.

9.This action was commenced by Mr Tan as a derivative action.  I assume, without deciding, that this was a properly constituted derivative action.

10.The defendant is a private company incorporated in Hong Kong. 

11.In October 1993, the plaintiff entered into a joint venture contract with a China party and another party to establish the joint venture company in China.  Both Mr Tan and Mr Chan were directors of the joint venture company.

12.By early 1994, the plaintiff held 47% of the shares of the joint venture company, having invested a total of RMB6,815,000.00.

13.On 17 August 2001, a directors’ meeting of the joint venture company was held in Singapore to discuss increasing the issued capital of the joint venture company.  Mr Tan attended that meeting but walked out of it before its conclusion.  The meeting continued and it was resolved that the capital of joint venture company be increased from RMB 10 million to RMB 15 and that new shareholders be admitted.

14.On about 31 October 2001, the joint venture company issued new shares and the plaintiff’s percentage shareholding in the joint venture company was reduced from 47% to 33.19%.  The defendant became a 29.26% shareholder of the joint venture company.  Both the plaintiff and Mr Tan knew about the change in shareholding in the joint venture company by November 2001.

Injunction application

15.Mr Tan stated in his (first) affidavit that:

“46. The Plaintiff’s shareholding in [the joint venture company] constitutes its major asset, comprising 76.6% of its equity investment in 1994.  This percentage has increased over the years due to losses suffered by the Plaintiff from other investments.

47. The Plaintiff has been deprived of and/or has lost the chance of subscribing for the new shares issued by [the joint venture company].

48. The Plaintiff’s shareholding in [the joint venture company], and its corresponding entitlement to dividends in relation to this shareholding, has been substantially diluted and/or reduced.

49. The Plaintiff’s voting power as a shareholder in [the joint venture company] has now been substantially reduced and/or diminished, and the control of [the joint venture company] now effectively lies with [Mr Chan].”

16.The plaintiff asked for an Order that:

“The Defendant must not:

(a) In any way deal with or dispose of the shares now registered in its name in [the joint venture company];

(b) In any way deal with or diminish in value any sum representing dividends, declared or paid, in respect of the Shares;

(c) Vote, whether or not by proxy, at any directors’ or shareholders’ meetings of [the joint venture company];

(d) Be involved in any way, whether through the Defendant’s officers or directors, or otherwise, in the management and operation of [the joint venture company].”

Delay

17.The plaintiff and Mr Tan knew about the matters complained of by November 2001.  It was not until about mid-May 2006 that the plaintiff applied for an injunction.  There was a delay of more than 4 ½ years.

18.I asked Mr Damien Laracy whether there was any explanation for the 4 ½ years’ delay and whether the delay point was fatal against the plaintiff’s application.  He drew my attention to what Mr Tan said in his (first) affidavit:

“Timing of this Injunction Application

50. In the period 2002 to 2004, I raised the issue of the Plaintiff’s investment in [the joint venture company] with [Mr Chan] on a number of occasions and in particular, at a Meeting of the Plaintiff’s Board in May 2004, where I put these matters on record including the issue of new shares by [the joint venture company].  However, [Mr Chan] failed and/or refused to provide answers and further attempted to remove me as a director of the Plaintiff.

51. Accordingly, I had no option but to bring an action in Singapore against [Mr Chan] and the Defendant herein for leave to commence proceedings against them in the name of the Plaintiff.  The Singapore proceedings were commenced in September 2004 and heard on 17 May 2005.  At that time, the High Court of Singapore granted me leave to commence proceedings in the name of the Plaintiff.

52. Subsequent to the said Court Order, my Singapore solicitors, Joseph Tan Jude Benny, in a facsimile dated 8 June 2005, sought clarifications regarding the Order made on 17 May 2005.  The Court took some time, finally addressing the various issues in February 2006.  I understand from JTJB that this was because the Judge who heard the matter fell seriously ill soon after May 2005, retired, and eventually passed away.  Due to these difficulties, the Order of 17 May 2005 was not extracted from the Court by JTJB until 26 April 2006.”

19.In my judgment, this did not begin to explain the 4 ½ years’ delay. 

20.Neither party cited King Fung Vacuum Limited and another v Toto Toys Limited and another, unreported, CACV305/2005, 29 March 2006.  In that case, Rogers VP explained why delay of more than 3 months could be fatal:

“20. There has traditionally been a strong requirement when interlocutory injunctions have been sought, that the plaintiff must show that it has acted promptly and without delay.  Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of six weeks or so of unexplained delay and three months with an explanation given for the delay in making application for an injunction.  Since the American Cyanamid decision the importance of irreparable damage in an application for an interlocutory injunction is paramount.  If there is no irreparable damage demonstrated then the need for an interlocutory injunction has not been shown.  This is important because of the approach that the courts take to interlocutory injunctions.  They are not the trial of the action and the court is concerned with whether irreparable damage will occur before a trial can take place.  It stands to reason that if a party is prepared to allow matters to proceed and takes no action with respect to matters which have been extant for lengthy periods, it lies ill in their mouth to say that there is likely to be irreparable damage and that is the case here.

21. The defendants have come along a year or so after they had become aware of the facts of which they now complain, and say, ‘Oh, well, there is likely to be irreparable damage’.  But that is not established simply by so saying …

…

23. The judge in his judgment appears to have totally overlooked the fact of the delay and its effect on the allegation of irreparable damage”.

21.4 ½ years’ delay in an application for interlocutory injunction is unheard of, at least so far as I am concerned.  The case could have gone all the way from the Court of First Instance to the Court of Final Appeal in 4 ½ years.  Irreparable damage did not arise simply because the plaintiff had just started proceedings against the defendant in Singapore and had seen fit to make this thoroughly unmeritorious application.

22.On this ground alone, the plaintiff’s application must be dismissed.

Risk of dissipation and other requirements

23.The plaintiff’s application must fail because it did not satisfy other basic requirements. 

24.The shares in the joint venture company and the dividends declared by the joint venture company are foreign assets.

25.In Bank of India v Bhagwandas Kewalram Murjani and others [1989] 2 HKLR 318, the Court of Appeal considered the circumstances in which a mareva injunction restraining the disposition of assets outside the jurisdiction might be granted and gave the following guidance at pp. 319 -  320.

“That the relief operates in personam as regards a defendant but, in effect, ad rem as against third parties and does not amount to a pre-trial attachment of assets was common ground. In our opinion a Mareva injunction affecting assets outside the jurisdiction may be granted when there is a good arguable case that the plaintiff will recover judgment, reason to think both that the defendant, properly before the court, has such assets available to satisfy it but insufficient assets within the jurisdiction for the purpose and the Court is satisfied that there is a real risk that the defendant may take steps designed so to dispose of or conceal such foreign assets as to render the judgment nugatory by the time that it is given. Further, the defendant may be ordered to make discovery as to his assets in a proper case and the jurisdiction in that regard is not limited to tracing actions. Thus, subject to provisos and undertakings apt to allow the defendant to carry on his business and private life in the ordinary way and to limit the effect of the order on third parties outside the jurisdiction, the principles applicable to the grant of an injunction inhibiting the disposition of assets within the jurisdiction are, as Barnett, J. held, equally applicable to the grant of such an injunction directed to assets outside it. We so conclude in the light of the several persuasive authorities decided between June and December 1988 during which the practice in the English Court of Appeal was developed and clarified and, in particular, of Derby & Co. Ltd. v. Weldon (Nos. 3 & 4) [1989] 2 WLR 412.”  

26.There is no evidence that the defendant had insufficient assets in Hong Kong to satisfy any judgment which might be awarded against the defendant, whether in Hong Kong or in Singapore.

27.The plaintiff had, inter alia, to show, on the evidence as a whole, that a refusal of an injunction would involve a real risk that a judgment or award in its favour would remain unsatisfied, Ninemia Maritime Corp. v Trave GmbH [1983] 1 WLR 1412. 

28.There is no evidence on the risk, if any, that the defendant might take steps designed so to dispose of or conceal its assets as to render any judgment nugatory by the time that it was given. 

Security for costs application

29.The plaintiff is a Singaporean company.  Its central management and control is located in Singapore.

30.While it is true that it is stated in paragraph 23/3/4 of Hong Kong Civil Procedure 2006 that:

“There is no inflexible rule or practice that a plaintiff resident abroad will be ordered to give security for costs; the power to make such order is entirely discretionally under r.1(1)”,

the next sentence reads as follows:

“On the other hand, as a matter of discretion, it is the usual ordinary or general rule of practice of the court to require the foreign plaintiff to give security for costs, because it is ordinarily just to do, and this is so, even though by the contract between the parties, the foreign plaintiff is required to bring the action in the jurisdiction …”

31.This point was settled by the Court of Appeal 10 years ago in Montgomery Ward & Co. Inc. v Evergo Trading Co. Ltd and another, unreported, CACV32/96, 31 May 1996.  The Court of Appeal explained why it is ordinarily just to order security:

“Given that there are no proper factors weighing in favour of the foreign plaintiff or at least either way, it seems to me that his discretion plainly had to be exercised in conformity with the position set out in the judgment of Lord Denning in Aeronave SPA v Westland Charters [1971]3 All ER 531 at 533 where he said this:

‘I agree with the note in the Supreme Court Practice that the rule does give a discretion to the court. In 1984 in Crozat v Brogden Lopes LJ said that there was an inflexible rule that if a foreigner sued he should give security for costs. But that is putting it too high. It is the usual practice of the courts to make a foreign plaintiff give security for costs. But it does so, as a matter of discretion, because it is just to do so. After all, if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign country to enforce the order.’

Reverting to the position here, there appear to be no proper considerations or factors that would render it just not to order security. It is simply that an action has been brought by a foreign plaintiff. I do not find myself in a position to assess the strength or the weakness of the plaintiff’s case. In those circumstances it seems to me that the discretion should plainly be exercised in the manner that is recommended in the judgment of Lord Denning. Applying Lord Denning’s approach, it seems to me only just that security should be provided to Evergo Holdings the 2nd defendant, and that if successful, it should not have to go to America to recover its costs”, per Nazareth VP at p. 4.

“It seems to me that there are only three things which are clear in this case. First, the plaintiff is a foreign corporation. Secondly, if the second defendant were to win at the trial, it would be exposed to considerable inconvenience in recovering its costs if no security for them is in place. Thirdly, there is no evidence that an order for security would result in the action being stifled or even in hardship to the plaintiff.

In those circumstances, it seems to me that the only proper order is one granting security for the second defendant’s costs”, per Bokhary JA (as he then was) at pp. 4-5.

“Where, on the application of a defendant to an action, it appears to the court that the plaintiff is ordinarily resident out of the jurisdiction, then, if having regard to all the circumstances of the case, the court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action as it thinks just : see O.23 r.1(1) of the Rules of the Supreme Court.

There is no inflexible rule that a foreign plaintiff will be ordered to give security for costs.  The power to make such an order is entirely discretionary.  But, as a matter of discretion, it is the general rule of the court to require the plaintiff to give security for costs; because it is, ordinarily, just to do so”, per Godfrey JA at p. 5.

32.In my judgment, it was just to order security, there being no reason why the defendant should be exposed to inconvenience in having to seek enforcement in Singapore.

33.Contrary to good practice, the defendant did not produce any draft skeleton bill of costs in its affidavit evidence.  A copy of a draft bill which was produced to the judge at an earlier hearing was handed to me in the course of the hearing.  That draft bill was amateurish and unhelpful.

34.Mr Damien Laracy and Ms Elsie K.S. Yiu were able to agree the amount of the security for costs up to the date of hearing.  The agreed amount was the amount I ordered.

Mr Damien Laracy of Messrs Laracy Gall, for the Plaintiff

Ms Elsie K.S. Yiu, instructed by Messrs Christine M Koo & Ip, for the Defendant